DOCKET NO.: 89-1149
DECIDED BY: Rehnquist Court (1990-1991)
LOWER COURT: United States Court of Appeals for the Eighth Circuit
CITATION: 498 US 279 (1991)
ARGUED: Oct 29, 1990
DECIDED: Jan 15, 1991
John G. Roberts, Jr. – for the U.S., et al., as amici curiae in support of petitioners by special leave of Court
Michael J. Gallagher – Argued the case for the petitioners
Timothy K. McNamara – Argued the case for the respondents
Facts of the case
Frank Garner was convicted of defrauding Coy Grogan and ordered to repay him. Garner then filed for Chapter 11 Bankruptcy, asking the Bankruptcy Court to discharge (that is, nullify) his court-ordered repayment to Grogan. Grogan argued that the debt should not be discharged because section 523(a) of the bankruptcy code exempts obligations for money obtained by “actual fraud.” The Bankruptcy Court, based on portions of the fraud case, agreed and did not allow Garner to discharge the debt. The District Court affirmed, but the Eighth Circuit Court of Appeals reversed, finding that the standard of proof used in the original fraud case – the “preponderance of the evidence” standard – was lower than the standard of proof demanded under section 523(a) – a “clear and convincing evidence” standard. The Court found that most states used the “clear and convincing” standard in fraud cases and that Congress would have explicitly stated it if they used a different standard. Moreover, it argued that the intention of the bankruptcy code to provide a “fresh start” suggested that the standard most favorable to bankruptcy filers should be used (that is, the more demanding “clear and convincing” standard).
What standard of evidence should bankruptcy courts apply in considering whether a debt was the result of “actual fraud” under section 523(a) of the Bankruptcy Code?
Media for Grogan v. Garner
Audio Transcription for Opinion Announcement – January 15, 1991 in Grogan v. Garner
William H. Rehnquist:
The opinion of the Court in No. 89-1149, Grogan against Garner will be announced by Justice Stevens.
John Paul Stevens:
The petitioners had secured a fraud judgment against respondent.
While appeal of that judgment was pending, the respondent filed for reorganization under Chapter 11 of the Bankruptcy Code.
After the fraud judgment was affirmed, petitioners filed a complaint in Bankruptcy Court seeking a ruling that their judgment was exempt from discharge under Section 523(a) of the Code.
That section provides that a discharge in bankruptcy shall not release a debtor from certain obligations including those for money obtained by actual fraud.
The question in this case is whether the statute requires a defrauded creditor to prove his claim by clear and convincing evidence in order to preserve it from discharge.
The Bankruptcy Court found that all of the elements required to establish actual fraud under Section 523 had been proved in the prior proceeding and held that the doctrine of collateral estoppel require the holding that the debt was therefore not dischargeable.
The District Court affirmed, but the Court of Appeals for the Eighth Circuit reversed ruling that collateral estoppel did not apply because petitioners had proved their underlying fraud claim only by a preponderance of the evidence.
The discharge exception the Court of Appeals held requires proof by the higher clear and convincing standard.
We now reverse, we hold that a creditor need prove his entitlement to an exception from discharge by only a preponderance of the evidence.
Neither the statutory text nor the legislative history provides evidence of congressional intent to require a standard of proof more stringent than the preponderance standards which generally applies in civil actions.
Application of the preponderance standard is consistent with the structure of the discharge exceptions and with Congress’ intent that all fraud claims that have been reduced to judgment be exempt from discharge.
Our opinion is unanimous.